ABS news archive
ABS background - summary
Legal Services (Scotland) Act 2010
Application to become an approved regulator
If you have any questions or comments on this matter, please contact Samantha Hollywood.
In 2004, Sir David Clementi reported to the Westminster Parliament in relation to the legal services market. He recommended that for the benefit of consumers, competition in the legal services market should be opened up, in particular that legal services businesses should be able to be owned by non-solicitors.
This opened the door for external investment and also the potential for creation of multi-disciplinary practices.
The equivalent Scottish legislation (the Legal Services (Scotland) Bill) was introduced to the Scottish Parliament on 30 September 2009.
The Bill passed through its usual stages within the Scottish Parliament and was considered by the Justice Committee. During that process, the Society gave evidence in relation to the contents of the Bill and also submitted a number of amendments.
These amendments were (at least in part) promulgated on the basis of discussions and motions which came before the annual general meeting and special general meetings of the Society, where the topic of alternative business structures was discussed in some detail.
The Bill was passed by the Scottish Parliament on 6 October 2010, with royal assent being received on 9 November 2010.
Since that time, the Society has discussed the position with government on a number of occasions and the government has brought forward the necessary measures to implement the legislation, including the provision of certain regulations.
The structure for regulating alternative business structures in Scotland
The government will approve a maximum of three regulators (approved regulators) who will be responsible for regulation of licensed legal services providers (licensed providers). Within the 2010 Act, an amendment was made to the Solicitors (Scotland) Act 1980 to allow the Society to apply to become an approved regulator - a policy approved by the Council.
The main difference between the Scottish and English legislation arises from the different ownership models which can exist north and south of the border. South of the border, there are no restrictions on ownership of a licensed body (ABS). North of the border, a licensed provider must be owned 51% by solicitors and/or members of other regulated professions. The regulated professions were determined by government after consultation and confirmed in regulations and include various types of accountant, architects, actuaries and surveyors.
The aim of the legislation
The aim of the 2010 Act is to set out the framework for a regulatory scheme for licensed providers, as well as indicating what will be expected of an approved regulator. The regulatory framework requires specifically practice rules, accounts rules and rules in relation to licensing.
In the draft regulatory scheme, the team working on that scheme have, so far as possible and appropriate, aimed to adapt the current practice rules for the solicitor profession into rules for licensed providers - the regulation of licensed providers is based on the services provided and the entity as opposed to solicitor regulation, which is based on individuals. In addition, there are specific rules in relation to licensing to take account of issues such as the fitness of other professionals and/or investors to become involved in the owning of or running of a licensed provider business.
The further draft of the regulatory scheme, draft Guarantee Fund rules (with explanatory note) and draft solicitor descriptor rules (with explanatory note) have been issued to Council members for consideration in advance of the Council meeting on 23 November 2012.
The Wider Working Group set up by the Council has been reviewing and commenting on the scheme as it has been drafted and refined. That group includes practitioners for different backgrounds and practices.
The draft regulatory scheme for licensed providers to be submitted to the Scottish Government was considered and discussed by the Council on 25 October 2012 along with other relevant papers.
Following those discussions, some further amendments have been made to the draft scheme. The Wider Working Group is also considering some of the issues arising and a further draft of the scheme and accompanying papers will be brought forward for formal approval by the Council at its meeting on 23 November after which the approved regulator application will be made to the Scottish Government.
This consultation is intended to seek views and inform the Scottish ministers' decision on who should be included in the definition of 'regulated profession' in section 49 of the Legal Services (Scotland) Act 2010, and so be permitted to own a majority or controlling share in a licensed provider.
- see the Scottish Government's website to view the consultation paper
- the Law Society of Scotland's repsonse (May 2011)
The October 6 date for ABS to go live in England and Wales saw the emergence of one new regulator, the Council for Licenced Conveyancers, which has been able to licence conveyancing firms as ABS.
The Solicitors Regulation Authority, which also plans to regulate ABSs south of the border, is currently waiting for new legislation put forward by the Ministry of Justice on spent convictions to be approved by MPs before it becomes a regulator. In Scotland, the government has said that its regulations are likely to be finalised early in 2012. This will then allow the Society to apply to the Scottish Government for approved regulator status, with the first new licensed legal services providers potentially appearing in Scotland by late summer 2012.
The Society has prepared a draft handbook for licensed providers which, although not in its final form, gives an indication of the Society's approach to licensing and regulation of licensed providers. Any firms which are interested in becoming a licensed provider can contact Philip Yelland, Director of Regulation, or Samantha Hollywood at the Society to view a copy and discuss it further.
The Legal Services (Scotland) Act 2010 (Commencement No. 1 and Saving Provision) Order 2011 brings into force various provisions of the Legal Services (Scotland) Act 2010. The Act received royal assent on 9 November 2010. Sections 146 to 150 came into force the day after.
Read the full details of the commencement order.
The Scottish Government launched a consultation on which professions should be regarded as a regulated professionals. Section 49 of the Act requires that qualifying investors (solicitor investors or a members of another regulated profession) have at least a 51% stake of the total ownership or control of the licensed provider and these will be specified by regulation.
The consultation runs for 12 weeks until 11 May 2011 and the Society encourages the membership to respond directly to the consultation or to make their views known to the Society. A link is attached to the consultation [http://www.scotland.gov.uk/Publications/2011/02/09105855/0]. The Society intends to respond and this exercise will be coordinated by the law reform team. Any members wishing to respond via the Society should contact Michael Clancy at MichaelClancy@lawscot.org.uk or Katie Hay at KatieHay@lawscot.org.uk by Thursday 31 March 2011.
The Legal Services (Scotland) Act 2010 received royal assent on 9 November. The Act is available on the UK Legislation website.
The Legal Services (Scotland) Bill passed its final stage in the Scottish Parliament on 6 October.
As the Justice Committee takes a break over summer, discussions between the Society and the Scottish Goverment are ongoing regarding the Legal Services (Scotland) Bill.
The Society's Council is also set to discuss the potential impact of the Bill on the Guarantee Fund at its meeting on 6 August. See our information sheet, Myth-busting the Guarantee Fund, for more information about the fund and how it is administered.
Stage 2 of the Legal Services (Scotland) Bill, which took place over four sittings in June, is now complete and the amended Bill has been reprinted.
The Justice Committee and the Minister for Community Safety, Fergus Ewing, debated a considerable number of amendments, many of which had been raised by the Law Society of Scotland.
In its first sitting, the Justice Committee adopted a number of amendments which were suggested by the Society, including: the addition of the promotion of the interests of justice to the regulatory objectives that apply to legal services providers and regulators; and the addition of client confidentiality and ethical behaviour to the professional principles to which providers must adhere.
In its second sitting, the committee rejected proposals for 100% external ownership of licensed legal services providers and agreed that they would need to be at least 51% owned, managed and controlled by solicitors, firms of solicitors or incorporated practices, or members of other regulated professions. This gave effect to the Society's policy, which was adopted following its AGM in May at which the matter was debated.
The committee also discussed the role of the Lord President in relation to the appointment of approved regulators and concluded that his consent should be sought in relation to various aspects of the appointment process. This was another matter on which the Society had been pressing for changes to the Bill. His enhanced participation in the process was described as an important 'constitutional buffer' between the government and the legal profession and necessary to preserve the independence of the profession.
In its third sitting, the committee agreed an amendment to open the Guarantee Fund to all new legal services providers. The Society's own policy position on this matter, as agreed in April 2010, was that only those legal services providers regulated by the Society should be able to contribute and have access to the fund along with traditional solicitors' practices. However, the minister expressed the view that it was legitimate for the Guarantee Fund to be opened up in this way, as it is a statutory fund set up to protect the public, which the Society administers.
Nonetheless, Mr Ewing accepted that the amendment would have implications for the Society and agreed to further talks during the summer to address the Society's concerns and reach a more considered conclusion on how the fund should work in the future. Further amendments are likely to be brought forward at stage 3.
In the fourth and final sitting, an amendment was agreed which put into effect the minister's earlier undertaking to remove provisions of the Bill which would have allowed Scottish ministers to influence the composition of the Council and set the criteria for non-lawyer membership of the ruling body. However, the whole of section 92 was not removed. It retains important provisions to permit non-solicitors to become full voting members of the Council, rather than lay observers as at present. The Society believes that enhancing the role of non-lawyers reflects a statutory duty to promote the interests of the public as well as the solicitors' profession.
It was also agreed that ministers should be allowed, at some future point and following consultation with the Society and others, to change the percentage of non-solicitors or regulated professional ownership of licensed legal services providers.
A further amendment was passed to ensure that the functions of a new regulatory committee are kept separate from the Council; and a proposal to set up a separate representative council at the Law Society was rejected.
The Society will re-engage with both government officials and MSPs on a range of issues in advance of stage 3, which will commence in September.
March has been a busy month for the Legal Service (Scotland) Bill team at the Society.
Six ABS roadshows have been delivered in Aberdeen, Glasgow, Inverness, Dundee and Dumfries, finishing in Edinburgh. Members have provided excellent feedback, telling us they are leaving the roadshows better informed on ABSs and how the proposed new legislation will affect them and their businesses. The roadshows have been fully subscribed and have been attended by more than 500 members, prompting requests for further faculty visits, which are now being coordinated.
Questions raised by members at the roadshows are being fed into the ABS FAQs.
The Edinburgh ABS roadshow was held on 18 March, with a speech from Fergus Ewing MSP.
The Society's Council has decided to hold an independent referendum that will allow every member of the profession to vote on whether they support the introduction of ABSs and also if they agree that the Society should apply to regulate ABSs. View details on the ABS referendum.
Legal Services Bill stage 1 report
The Scottish Parliament's Justice Committee published its stage 1 report in March. Visit the parliament website for the full report.
Although the committee recommends to the Scottish Parliament that the general principles of the Bill are agreed to, it nonetheless has a number of reservations. These are largely due to the fact that it did not feel that the witnesses who were in strongest support of the Bill - particularly those from the consumer lobby - put forward enough evidence to support their views. The committee therefore concluded that, while the Bill is potentially significant to larger Scottish law firms, the advantages for smaller firms and consumers are less clear.
The committee also identified a number of specific concerns upon which it has sought further clarification from the Scottish Government. These include:
- the lack of equivalent Guarantee Fund provisions
- how licensed providers intend to brand themselves and the potential consequences for transparency and consumer clarity
- outside investors and the need for a more robust 'fitness for involvement' test
There were specific instances when the committee voiced its agreement with the Society, particularly in relation to concerns about the powers given to Scottish ministers under the Bill and how the role of the Lord President could be enhanced to address the potential lack of independence for Scotland's legal profession when it is regulated by Scottish ministers.
The deadline for completion of stage 1 is now 30 April 2010.
Consultation on regulating will writers in Scotland
This consultation considers whether it would be in the public interest to amend the Legal Services (Scotland) Bill, currently at stage 1 in the Scottish Parliament, to introduce provisions for the regulation of will writers. The Society would urge members of the profession and members of the public with an interest to respond. The deadline for submitting your comments is 10 February 2010. Further details are available by clicking on the above link.
The Society is holding a series of free roadshows in March to inform all members about the progress of the Legal Services (Scotland) Bill and how it will affect them in practice. The Society's senior management will deliver a short presentation followed by a Q&A session to give members the opportunity to raise questions about the Bill as well as other issues or Society work. The Society is also working on a regulatory and financial model which will be published for consultation with members prior to the first event on 2 March. The roadshows will take place in Aberdeen, Glasgow, Inverness, Dundee, Dumfries and Edinburgh.
On 15 December, the Society gave evidence on the Legal Services (Scotland) Bill to the Scottish Parliament's Justice Committee. The committee also heard evidence from the OFT, Which?, the Faculty of Advocates, Professor Alan Paterson, the Society of Solicitor Advocates, the Scottish Law Agents Society, the WS Society, Scottish Legal Action Group, the Scottish Legal Aid Board, the Institute of Chartered Accountants of Scotland, Consumer Focus Scotland, UNITE trade union and Gilbert Anderson, solicitor.
On 30 November 2009, the Society submitted written evidence to the Scottish Parliament's Justice Committee on the content of the Legal Services (Scotland) Bill, and to the Finance Committee on the financial implications of the Bill.
Read the Society's comments on the Bill and the Society's comments on the financial memorandum.
The Legal Services (Scotland) Bill was published on 1 October 2009. The Society welcomed its publication, noting that Scotland's legal profession should be able to adapt to best meet the needs of modern society and a global economy. However, the Society remained of the view that the Bill would need to ensure the independence of the legal profession, promote access to justice and maintain robust consumer protections and high standards among those delivering legal services - believing that effective regulation would be key to any plans for change.
View the Legal Services (Scotland) Bill and monitor how it progresses through parliament.
The Society issued a formal response to the Scottish Government's consultation on 3 April 2009. In its response, the Society backed the modernisation of legal services by allowing for alternative business structures. It also suggested that the Scottish Government should take the necessary steps to amend or repeal the legislation that currently impedes or prevents alternative business structures as soon as possible.
View the Society's response.
The Scottish Government launched its consultation, Wider Choice and Better Protection, on 5 January 2009. The consultation sought views on the proposed introduction of alternative business structures for the delivery of legal services in Scotland and the regulatory features that will be required to support them.
Proposals for draft legislation included: setting out regulatory objectives and professional principles; regulating ABSs at entity level; introducing a 'fit to own' test for non-lawyer owners; requiring all ABSs to have a head of practice or practice committee; and, requiring all ABSs to provide equivalent levels of professional indemnity and compensation to traditional firms.
The consultation paper also made clear that if the Law Society of Scotland were to be an approved regulator of ABS, it would need to review its governance arrangements. View the consultation paper.
Solicitors voted in favour of ABSs at the Society's annual general meeting on 22 May 2008. The final poll after proxies was 801 in favour of the policy paper with 132 votes against.
The Society produced an analysis of the consultation responses that it received. A total of 92 responses were received - some from individual respondents, some on behalf of firms and some on behalf of faculties and other organisations.
In its response to the OFT report, the Scottish Government invited the Society and the Faculty of Advocates to put forward their own proposals for how restrictions on the legal profession should be lifted. The cabinet secretary for justice announced that there would not be a legal services board in Scotland, saying that it would be 'a disproportionate and inefficient response'.
The Law Society of Scotland launched a three-month consultation on alternative business structures. The consultation was distributed via the Society's e-bulletin and website with a wider stakeholder group receiving email correspondence. Further promotion was given through the Journal and the media. Various prompts were used during the period of consultation to encourage responses.
View the consultation paper.
The Legal Services Bill received royal assent.
The Society held a conference in Edinburgh, The Public Interest - Delivering Scottish Legal Services. The cabinet secretary for justice was the keynote speaker.
The OFT responded to the Which? super-complaint stating that the Scottish Government should aim to have a programme of policies by the end of 2007, detailing how legal services should be regulated and how restrictions could be lifted, and to project a realistic timeframe for these policies to be effected. It also noted that the legal services market in Scotland is different to that of England and Wales and it was therefore important 'to develop an appropriate Scottish solution to any perceived problems'.
The Society held a members' event in London on ABS, the future of reform and implications for Scotland.
The consumer group Which? made a super-complaint to the Office of Fair Trading asking it to investigate 'how legal rules in Scotland are working against consumer interests' and raising concerns that the legal market in Scotland disadvantages the consumer due to certain regulatory restrictions, including solicitors being prohibited from adopting certain business models and the public from directly accessing the services of an advocate.
The Law Society of Scotland established an ABS working party.
The Legal Services Bill was introduced into the House of Commons. It took forward most of Clementi's recommendations, ie it made provision for the establishment of the Legal Services Board and the Office for Legal Complaints. In respect of alternative business structures, it went further than Clementi's recommendations, by introducing a 'bare-bones' regulation framework and licensing regime for all ABS.
The Scottish Executive Research Working Group published its findings on restrictions in the Scottish legal services market. In respect of alternative business structures, it concluded that while they were likely to stay on the agenda, given the contents of Clementi's report, policy development work would be required to establish the extent to which they suit Scottish circumstances and how they might best be regulated if they were to become a reality in Scotland.
Sir David Clementi published his final report, which included the following recommendations:
- a Legal Services Board should be established
- front-line bodies should be required to make governance arrangements to separate their regulatory and representative functions
- an Office for Legal Complaints should be established
- LDPs should be able to operate, bringing together lawyers from different professional bodies and non-lawyers
The Scottish Executive established a research working group to examine whether regulation of the Scottish legal services market is free of anti-competitive restrictions.
Sir David Clementi was appointed by the Department of Constitutional Affairs to carry out a review of the regulation of the legal services market in England and Wales.